One of the most interesting decisions made in terms of the relatively new Arbitration (Scotland) Act 2010 (“the 2010 Act”) has been issued by Lord Woolman in the case of Arbitration Application 1 of 2013 [2014 CSOH 83].
Euan McSherry and Philip Knight of national law firm DWF LLP acted for the landlord in successfully defending a challenge to the arbitrator’s award by the tenant.
By way of background, in 1969, a hotel was leased for a term of 125 years; with 'upward only' rent reviews every 14 years. The parties to the action were the current landlord and tenant who were unable to agree a figure for the last rent review and referred the matter to arbitration as per the terms of the lease. The arbitration ensued governed by the Scottish Arbitration Rules (“SARs”) incorporated into the 2010 Act. The tenant contended that the annual rent should remain at £350,000, while the landlord argued for an increase to just over £1.1 million. Following submissions and legal argument where Euan McSherry appeared for the landlord, the arbitrator fixed a figure of £802,500 per annum. The difference for the remainder of the term was a seven figure sum.
The tenant made a serious irregularity appeal under rule 69 of the Scottish Arbitration Rules. It also sought leave to bring an error of law appeal under rule 68. The parties sought, and were granted, anonymity in terms of section 15 of the 2010 Act. The decision contains a useful discussion of the relevant cases in this area north and south of the border. Some of the main issues are set out below.
Founding Principles of the 2010 Act
Lord Woolman observed that the 2010 Act is modelled on the Arbitration Act 1996 which applies in England and Wales. The founding principles set out in section 1 of the 2010 Act underpin all questions of arbitration in Scotland. They are (i) the object of arbitration is to resolve disputes fairly, impartially and without unnecessary delay or expense; (ii) the parties should be free to agree how to resolve disputes, subject only to such safeguards as are necessary in the public interest; and (iii) the court should not intervene except as provided by the Act.
Serious Irregularity Appeal – Rule 69
In the course of his reasoning, Lord Woolman made three general points about serious irregularity appeals. First, they are designed as "a long stop available only in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected". Second, the court will not intervene on the basis that it might have done things differently, or expressed its conclusions on the essential issues at greater length. Third, such an appeal can only succeed if there has been substantial injustice. If the result of the arbitration would have been likely to be the same or very similar, then there is no basis for overturning the award. Accordingly a dissatisfied party has to meet a high test and DWF successfully argued that the tenant had not in this case.
The allegation that the arbitrator failed to give reasons lay at the heart of the tenant's case. The tenant argued that the arbitrator's reasoning was "in many cases obscure, not apparent to the parties or, in some instances, non-existent". Lord Woolman stated that the nature and length of the reasons to be given in an individual case will depend upon the whole context within which the decision is given. An arbitrator is only required to deal with the essential issues, not every point that is raised. One approach is to ask whether the award makes sense and his Lordship was persuaded that it did in this case.
Leave to bring a Legal Error Appeal – Rule 68
The tenant sought to rely upon the same factors for both branches of its appeal. Lord Woolman was not persuaded by this approach stating that “If something is an error of law, it cannot also be an irregularity”. In comments which many arbitrators will be pleased to hear, his Lordship saw the arbitrator's task being one of exercising his professional judgement to arrive at the correct figure. For an arbitrator’s decision to be obviously wrong, it must involve something in the nature of a major intellectual aberration. Lord Woolman was persuaded that was not the case here and refused leave.
This decision demonstrates that the Scottish Courts will be reluctant to interfere with an arbitrator’s award unless there has been an obvious wrong committed. Further it reinforces the view that the 2010 Act has introduced an effective and innovative arbitration regime which offers cost effective solutions for parties who wish, or require, an effective alternative to litigation. An active member of the Scottish Arbitration Centre, DWF regularly represents clients in arbitrations. While only a handful of arbitrations end up in the Scottish courts, DWF has acted for parties in a large number of those cases subject to an appeal the Scottish Courts and developed considerable experience of how the SARs and the 2010 Act works in practice.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.